This Equal-Weight ETF Has a Lot of Perks

Increasing attention is currently paid to a small number of stocks commanding outsized (and record) percentages of widely followed cap-weighted indexes. Meanwhile, advisors and investors are reviewing the equal-weight methodology.

One of the ETFs to consider in that category is the ALPS Equal Sector Weight ETF (EQL). It’s outpacing the S&P 500 Equal-Weight Index by 140 basis points since the start of the year. Add to that, the ALPS ETF’s annualized volatility this year is 210 basis points below that of the S&P 500 equal-weight gauge. Other factors, including the ongoing need for diversification, indicate EQL is relevant today.

“By December, just 2% of S&P 500 constituents accounted for close to 40% of total performance, an imbalance raising questions around the risk embedded in broad market exposure,” according to Y Charts.

EQL Advantages May Be Overlooked

With mega-cap growth stocks commanding so much and accounting for a significant portion of the cap-weighted S&P 500’s performance this year, investors may be overlooking the benefits of equal weighting and ETFs such as EQL. That shouldn’t be the case, particularly now, when other sectors beyond tech are making contributions to broader market upside.

“While a small group of companies continued to drive a disproportionate share of returns, gains were not confined to one sector or style,” added Y Charts. “Healthcare, for example, a laggard for long periods in 2025, became a meaningful contributor as conditions improved. With roughly two weeks left in the year, every major sector has posted positive year-to-date performances, despite a difficult first half.”

Improving sector breadth is pertinent in discussing EQL. The ETF equally weights sectors, not stocks like many of its rivals.

Y Charts highlighted some other interesting data points that could bolster the case for ETFs like EQL. Nearly 100 S&P 500 non-tech members are up at least 25% this year. Plus, 313 of the index’s components are trading above their 200-day moving averages.

Also overlooked is the point that the 10 best-performing S&P 500 members in 2025 combine for barely more than 2% of the cap-weighted index. Diversification still holds merit. It just needs to be properly deployed. EQL accomplishes that objective.

“The takeaway is not that diversification is unnecessary. In fact, the opposite is true. Diversification works best when it is part of a deliberate plan, not a reaction to discomfort,” concluded Y Charts. “Periods of strong, concentrated leadership test discipline. They require advisors to balance risk awareness with participation, and to help clients stay invested without overcorrecting in ways that limit long-term outcomes.”

For more news, information, and analysis, visit the ETF Building Blocks Content Hub.

Earn free CE credits and discover new strategies